ROBLEM SET B

Problem 15-1B (80 minutes)

Part 1 Total manufacturing costs and the costs assigned to each job

114 / 115 / 116 / Sept. Total
From August
Direct materials...... / $ 4,000 / $ 6,000
Direct labor...... / 2,000 / 2,200
Applied overhead*...... / 2,600 / 2,860
Beginning goods in process..... / 8,600 / 11,060 / $ 19,660
For September
Direct materials...... / 10,000 / 30,000 / $16,000 / 56,000
Direct labor ...... / 16,000 / 28,000 / 20,000 / 64,000
Applied overhead*...... / 20,800 / 36,400 / 26,000 / 83,200
Total costs added in Sept...... / 46,800 / 94,400 / 62,000 / 203,200
Total costs...... / $55,400 / $105,460 / $62,000 / $222,860

*Equals 130% of direct labor cost.

Part 2 Journal entries for September

a. / Raw Materials Inventory...... / 60,000
Accounts Payable...... / 60,000
To record materials purchases.
Factory Payroll...... / 68,000
Cash...... / 68,000
To record factory payroll.
Factory Overhead...... / 6,000
Raw Materials Inventory...... / 6,000
To record indirect materials.
Factory Overhead...... / 4,000
Factory Payroll...... / 4,000
To record indirect labor.
Factory Overhead...... / 24,000
Cash...... / 24,000
To record other factory overhead.
Factory Overhead...... / 22,000
Cash...... / 22,000
To record other factory overhead.

Problem 15-1B (Continued)

a. [continued from prior page]

Factory Overhead...... / 25,000

Accum. Depreciation—Factory Equip......

/ 25,000
To record other factory overhead.
b. / Goods in Process Inventory...... / 56,000
Raw Materials Inventory...... / 56,000
To assign direct materials to jobs.
Goods in Process Inventory...... / 64,000
Factory Payroll...... / 64,000
To assign direct labor to jobs.
Goods in Process Inventory...... / 83,200
Factory Overhead...... / 83,200
To apply overhead to jobs.
c. / Finished Goods Inventory...... / 160,860
Goods in Process Inventory...... / 160,860
To record jobs completed ($55,400 + $105,460).
d. / Cost of Goods Sold...... / 55,400
Finished Goods Inventory...... / 55,400
To record cost of sale of job.
e. / Cash...... / 100,000
Sales...... / 100,000
To record sale of job.
f. / Factory Overhead*...... / 2,200
Cost of Goods Sold...... / 2,200
To assign overapplied overhead.
*Overhead applied to jobs...... / $83,200
Overhead incurred
Indirect materials...... / $ 6,000
Indirect labor...... / 4,000
Factory rent...... / 24,000
Factory utilities...... / 22,000
Factory equip. depreciation...... / 25,000 / 81,000
Overapplied overhead...... / $ 2,200

Problem 15-1B (Continued)

Part 3

PAK COMPANY
Manufacturing Statement
For Month Ended September 30
Direct materials used...... / $ 56,000
Direct labor used...... / 64,000
Factory overhead
Indirect materials...... / $ 6,000
Indirect labor...... / 4,000
Factory rent...... / 24,000
Factory utilities...... / 22,000
Depreciation of equipment...... / 25,000 / 81,000
Total manufacturing costs...... / 201,000
Add goods in process August 31 (114 & 115)...... / 19,660
Total cost of goods in process...... / 220,660
Deduct goods in process, September 30 (116)...... / (62,000)
Add overapplied overhead*...... / 2,200
Cost of goods manufactured (114 & 115)...... / $160,860

*Alternatively, overapplied overhead can be listed among the overhead items.

Part 4

Gross profit on the income statement for the month ended September 30

Sales......

/ $100,000
Cost of goods sold ($55,400 - $2,200)...... / (53,200)

Gross profit......

/ $ 46,800

Presentation of inventories on the September 30 balance sheet

Inventories

Raw materials ......

/ $ 14,000*
Goods in process (Job 116)...... / 62,000
Finished goods (Job 115)...... / 105,460
Total inventories ...... / $181,460
* Beginning raw materials inventory...... / $16,000
Purchases...... / 60,000
Direct materials used...... / (56,000)
Indirect materials used...... / (6,000)
Ending raw materials inventory...... / $14,000

Part 5

Overhead is overapplied by $2,200, meaning that individual jobs or batches are over-costed. Thus, profits at the job (and batch) level are understated.

Problem 15-2B (75 minutes)

Part 1

a.
Dec. 31 / Goods in Process Inventory...... / 13,000
Raw Materials Inventory...... / 13,000
To record direct materials costs for
Jobs 603 and 604 ($5,000 + $8,000).
b.
Dec. 31 / Goods in Process Inventory...... / 18,000
Factory Payroll...... / 18,000
To record direct labor costs for
Jobs 603 and 604 ($6,000 + $12,000).
c.
Dec. 31 / Goods in Process Inventory...... / 14,400
Factory Overhead...... / 14,400
To allocate overhead to Jobs 603 and 604 at
80% of direct labor cost assigned to them.
d.
Dec. 31 / Factory Overhead...... / 1,500
Raw Materials Inventory...... / 1,500
To add cost of indirect materials
to actual factory overhead.
e.
Dec. 31 / Factory Overhead...... / 2,000
Factory Payroll...... / 2,000
To add cost of indirect labor to
actual factory overhead.

Part 2

Revised Factory Overhead account

Ending balance from trial balance...... / $ 9,800 / debit
Applied to Jobs 603 and 604...... / (14,400) / credit
Additional indirect materials...... / 1,500 / debit
Additional indirect labor...... / 2,000 / debit
Overapplied overhead...... / $(1,100) / credit
Dec. 31 / Factory Overhead...... / 1,100
Cost of Goods Sold...... / 1,100
To remove $1,100 of overapplied overhead from the Factory Overhead account and subtract it from cost of goods sold.

Problem 15-2B (continued)

Part 3

METRO COMPANY
Trial Balance
December 31, 2011
Debit / Credit

Cash ......

/ $ 40,000

Accounts receivable......

/ 80,000
Raw materials inventory*...... / 9,500
Goods in process inventory** ...... / 45,400
Finished goods inventory ...... / 50,000
Prepaid rent ...... / 4,000
Accounts payable ...... / $ 16,000
Notes payable ...... / 30,000
Common stock ...... / 60,000
Retained earnings ...... / 33,800
Sales ...... / 250,000
Cost of goods sold($140,000 – 1,100)...... / 138,900
Factory payroll...... / 0
Factory overhead...... / 0
Operating expenses...... / 22,000 / ______
Totals...... / $389,800 / $389,800

* Raw materials inventory

Balance per trial balance...... / $24,000
Less: Amounts recorded for Jobs 603 and 604...... / (13,000)
Less: Indirect materials...... / (1,500)
Ending balance...... / $ 9,500

** Goods in process inventory

Job 603 / Job 604 / Total
Direct materials...... / $ 5,000 / $ 8,000 / $13,000
Direct labor...... / 6,000 / 12,000 / 18,000
Overhead...... / 4,800 / 9,600 / 14,400
Total cost...... / $15,800 / $29,600 / $45,400

Problem 15-2B (Continued)

Part 4

METRO COMPANY
Income Statement
For Year Ended December 31, 2011
Sales...... / $ 250,000
Cost of goods sold...... / (138,900)
Gross profit...... / 111,100
Operating expenses...... / (22,000)
Net income...... / $ 89,100
METRO COMPANY
Balance Sheet
December 31, 2011
ASSETS
Cash...... / $ 40,000
Accounts receivable...... / 80,000
Inventories
Raw materials inventory...... / $ 9,500
Goods in process inventory...... / 45,400
Finished goods inventory...... / 50,000 / 104,900
Prepaid rent...... / 4,000
Total assets...... / $228,900
LIABILITIES AND EQUITY
Accounts payable...... / $ 16,000
Notes payable...... / 30,000
Total liabilities...... / 46,000
Common stock...... / 60,000
Retained earnings ($33,800 + $89,100)...... / 122,900
Total stockholders' equity...... / 182,900
Total liabilities and equity...... / $228,900

Problem 15-2B (Concluded)

Part 5

The $1,500 error would cause the costs for Job 604 to be understated. Since Job 604 is in process at the end of the period, goods in process inventory and total assets would both be understated on the balance sheet. In correcting the error, the over- or underapplied overhead would change by $1,500. That is, if overhead is overapplied by, say, $1,100, then overhead applied would increase by $1,500; yielding $2,600 in overapplied overhead. Any under- or overapplied overhead is charged directly to cost of goods sold, so cost of goods sold would decrease and net income would increase by $1,500.

Problem 15-3B (70 minutes)

Part 1

JOB COST SHEETS
Job No. 487
Materials...... / $13,500
Labor...... / 16,500
Overhead...... / 14,850
Total cost...... / $44,850
Job No. 488
Materials...... / $ 9,000
Labor...... / 19,500
Overhead...... / 17,550
Total cost...... / $46,050
Job No. 489
Materials...... / $12,000
Labor...... / 25,500
Overhead...... / 22,950
Total cost...... / $60,450
Job No. 490
Materials...... / $10,500
Labor...... / 18,000
Overhead...... / 16,200
Total cost...... / $44,700
Job No. 491
Materials...... / $ 1,500
Labor...... / 7,500
Overhead...... / 6,750
Total cost...... / $15,750

Part 2

a. / Raw Materials Inventory...... / 57,000
Accounts Payable...... / 57,000
To record materials purchases.
b. / Factory Payroll...... / 99,750
Cash...... / 99,750
To record factory payroll.
c. / Factory Overhead...... / 11,250
Cash...... / 11,250
To record other factory overhead.
d. / Goods in Process Inventory...... / 46,500
Factory Overhead...... / 3,750
Raw Materials Inventory...... / 50,250
To record direct & indirect materials.

Problem 15-3B (Continued)

e.[continued from prior page]

Goods in Process Inventory...... / 87,000
Factory Overhead...... / 12,750
Factory Payroll...... / 99,750
To record direct & indirect labor.
f. / Goods in Process Inventory...... / 54,000
Factory Overhead...... / 54,000
To apply overhead to jobs
[($16,500 + $25,500 + $18,000) x 90%].
g. / Finished Goods Inventory...... / 150,000
Goods in Process Inventory...... / 150,000
To record completion of jobs
($44,850 + $60,450 + $44,700).
h. / Accounts Receivable...... / 225,000
Sales...... / 225,000
To record sales on account.
Cost of Goods Sold...... / 105,300
Finished Goods Inventory...... / 105,300
To record cost of sales ($44,850 + $60,450).
i. / Factory Overhead...... / 51,000
Accum. Depreciation—FactoryBuilding...... / 24,750
Accum. Depreciation—Factory Equipment..... / 18,750
Prepaid Insurance...... / 2,250
Property Taxes Payable...... / 5,250
To record other factory overhead.
j. / Goods in Process Inventory...... / 24,300
Factory Overhead...... / 24,300
To apply overhead to jobs
[($19,500 + $7,500) x 90%].

Problem 15-3B (Continued)

Part 3

GENERAL LEDGER ACCOUNTS
Raw Materials Inventory / Factory Payroll
(a) / 57,000 / (d) / 50,250 / (b) / 99,750 / (e) / 99,750
Bal. / 6,750 / Bal. / 0
Goods in Process Inventory / Factory Overhead
(d) / 46,500 / (g) / 150,000 / (c) / 11,250 / (f) / 54,000
(e) / 87,000 / (d) / 3,750 / (j) / 24,300
(f) / 54,000 / (e) / 12,750
(j) / 24,300 / (i) / 51,000
Bal. / 61,800 / Bal. / 450
Finished Goods Inventory / Cost of Goods Sold
(g) / 150,000 / (h) / 105,300 / (h) / 105,300
Bal. / 44,700 / Bal. / 105,300

Part 4

Reports of Job Costs*

Goods in Process Inventory
Job 488...... / $ 46,050
Job 491...... / 15,750
Balance...... / $ 61,800

Finished Goods Inventory

Job 490...... / $ 44,700
Balance...... / $ 44,700
Cost of Goods Sold
Job 487...... / $ 44,850
Job 489...... / 60,450
Balance...... / $105,300

*Individual totals reconcile with account balances shown in part 3.

Problem 15-4B (35 minutes)

Part 1

a.Predetermined overhead rate

= == 80%

  1. Overhead costs charged to jobs

Direct / Applied
Job No. / Labor / Overhead (80%)
625...... / $ 300,000 / $ 240,000
626...... / 225,000 / 180,000
627...... / 975,000 / 780,000
628...... / 240,000 / 192,000
629...... / 375,000 / 300,000
630...... / 75,000 / 60,000
Total...... / $2,190,000 / $1,752,000

c.Overapplied or underapplied overhead determination

Actual overhead cost......

/ $2,200,000
Less applied overhead cost...... / 1,752,000
Underapplied overhead...... / $ 448,000

Part 2

Dec. 31 / Cost of Goods Sold...... / 448,000
Factory Overhead...... / 448,000
To assign underapplied overhead.